China soars for Flight Centre

Flight Centre
’s Chinese business is expected to make a profit for the first time since its inception six years ago as the travel agency continues its dramatic profit recovery.

Managing director
Graham Turner
has also flagged a recovery in corporate travel but shied away from upgrading the group’s profit guidance, to the disappointment of analysts and investors.

“Some analysts have speculated that we would upgrade our full-year profit expectations," Mr Turner said at the group’s annual general meeting in Brisbane yesterday. “It would, of course, be premature to take that step after just one good quarter."

Flight Centre reported an almost fourfold increase in annual net profit for fiscal 2010 and maintained that earnings this year would increase by a further 10 to 20 per cent. “We are performing in line with expectations, which means we remain on track to achieve our full-year target of a $220 million to $240 million pre-tax profit," Mr Turner said.

RBS analyst Belinda Moore said Flight Centre was probably on the conservative side in profit forecasts.

“We would expect Flight Centre to upgrade their profit guidance at their first-half results in February," she said. “The forecasts they have given for their traditional business and operations in the US are a bit conservative."

The group’s 20 Chinese businesses, which reaped a total transaction value of $116 million in fiscal 2010, are now expected to turn their first profit after making big reductions in costs. “We have been in China for about six years now and I think this will be the first year we will make a profit there," Mr Turner said.

The Chinese business broke even in the last four months of fiscal 2010.

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Businesses in Beijing, Shanghai and Hong Kong have improved, but the strong Australian dollar has crimped profits from overseas. UK sales rose 24 per cent in local currency during the September quarter but only 8 per cent when translated into Australian dollars.

“In terms of the Australia dollar’s impact on outbound travel, we believe that while a strong dollar certainly benefits travellers, it is typically a secondary consideration," Mr Turner said.

Flight Centre’s UK business is its largest profit generator outside Australia and is recording solid growth despite challenges in that economy.

“The UK leisure and corporate businesses have both performed well, with the new hyperstore in London’s Oxford Street profitable in its first month," Mr Turner said. The US business is expected to follow the same trend as last year with first-half losses followed by profits in the second half.

Flight Centre’s executive remuneration resolutions were passed yesterday, despite a stand from the Australian Shareholders Association, which voted it down on “principle".